Are Americans Really Greedy?

ByMurray Weidenbaum, Murray Weidenbaum is Mallinckrodt distinguished university professor and director of the Center for the Study of American Business at Washington University in St. Louis.September 5, 1991

EXPERIENCE teaches us to be cautious in blithely accepting as fact something that "everyone knows." In this spirit, let us turn to a proposition that has widespread if not universal acceptance: the decade of the 1980s was a period of greed, indeed of increased and unprecedented greed, in the United States. However, a new study by economist Richard McKenzie of the University of California at Irvine shows the common wisdom on the 1980s to be mere myth, unsupported by the facts. It turns out that liberal political pundits such as Kevin Phillips are wrong when they dub the 1980s a period of "conspicuous opulence." In a report published by the Center for the Study of American Business at Washington University, Professor McKenzie analyzes a very pertinent array of available, but hitherto untapped, information - the data on charitable giving in this country, by both individuals and businesses. His conclusion is clear and surprising: American generosity in the decade of the 1980s hit record highs. This finding holds true even after adjusting for inflation. In fact, McKenzie's conclusion holds up under a variety of other ways of measuring philanthropy, such as time-series analysis. For example, private charitable contributions by individuals grew at a much faster pace (5.2 percent a year) in the 1980s than in the late 1970s and earlier years (3.1 percent a year between 1955 and 1980). In contradiction to the mythology of selfishness, in the 1980s individuals increased their charitable giving at a much faster pace than their expenditures on a variety of goods and services that might be thought of as extravagances, such as jewelry and watches and the services of barber shops, beauty parlors, and health clubs. People also increased their charitable outlays by significantly more than they increased their use of consumer credit. Business also participated in the upswing in philanthropy. Charitable contributions by corporations rose faster in the 1980s (4.1 percent a year) than in earlier decades (2.7 percent a year between 1955 and 1980). Moreover, the upsurge in corporate giving occurred in the 1980s in the face of the continuing decline in the portion of the national income obtained by corporate profits (both before and after taxes). A similar upward trend in charitable giving is apparent when the data are adjusted for population growth. Real giving by individuals rose from $284 per person in 1980 to $409 in 1989. The growth rate in that decade was more than twice the rise in the earlier period (1955-1980). During the 1970s, a declining share of the national income went to philanthropy (a phenomenon overlooked by most observers). In a reversal of that trend, private donations rose from 2.1 percent of national income in 1979 to 2.7 percent in 1989. McKenzie attempted, via econometric analysis, to estimate the total amount that would have been donated to charitable causes in the 1980s if Americans merely maintained the pattern of the 1950s, 1960s, and 1970s. His data show that total charitable outlays in the 1980s averaged $14 billion higher each year (a yearly increment of 16 percent) than the results obtained simply by extrapolating the trends of the past. Of course, there is an inherent limitation to numerical studies of this type. By their very nature, they deal with totals and averages. The total of charitable contributions in the US in 1989, an all-time high of $121 billion, does not tell the full story. The numbers do not highlight the many people who are extremely generous in sharing their income and wealth with others. Neither do the data identify those scoundrels who detract from, rather than contribute to, the national welfare. Yet, these numbers that McKenzie has developed serve a very useful purpose. They illustrate that typical Americans may not be visionary philanthropists, but neither are they greedy misers, and surely they have not become so in the decade recently completed. In any event, the greed of the 1980s is a myth that needs to be put to rest. It will be interesting to see how long it takes for truth to overtake fiction in the public consciousness.